The portrait of Major George Maule by 18th century German neoclassical artist Johann Zoffany was due to go up for sale along with other art and pieces of furniture from Versace's Lake Como villa.

But Lot 72 was withdrawn before the auction at Sotheby's in New Bond Street, central London, in March last year amid confusion over its legal ownership.

Questions arose about the painting - which was estimated to fetch between £40,000 and £60,000 - after a descendant of the sitter saw an illustration of it in the London Evening Standard newspaper.

The family contacted the Art Loss Register (ALR), which identifies stolen works, and sent a photograph of the portrait hanging above the mantelpiece before it vanished some 30 years ago.

It is understood that Versace was unaware that it had been stolen when he bought it some years afterwards. On Monday it was disclosed that the treasured heirloom was reunited last week with the family, who live in Dorset, following agreement between Versace's trustees.

Christopher Marinello, executive director and general counsel at the ALR, said that they were delighted to have the painting returned.

Mr Marinello, who helped negotiate the case with the two parties, said: "It was all settled amicably. The family are overjoyed. They came here to our offices last week to pick it up and it was very emotional to see this painting back in their possession."

The ALR says it is the world's largest private international database of lost and stolen art, antiques and collectibles providing recovery and search services to private individuals, collectors, the art trade, insurers and law enforcement through technology and professionally trained staff of art historians.

It was formed in 1991 through a partnership between leading auction houses and art trade associations, the insurance industry and the International Foundation of Art Research.